Prediction markets are growing quickly and beginning to disrupt the U.S. gambling industry, and catching the attention of Caesars Digital. During a recent speech, Eric Hession, President of Caesars Digital, highlighted how these platforms could impact both online casinos and state tax revenue in the years ahead.
Eric Hession spoke last week before the Nevada Society of Certified Public Accountants.
His message was clear: prediction markets are not just a new trend—they are becoming serious competitors to regulated sports betting and online gaming. He thinks the proliferation of prediction markets could lead to more legalization of online casinos to capture lost tax revenue.
What Are Prediction Markets?
Prediction markets allow users to trade contracts based on the outcome of real-world events. These can include elections, economic indicators, and increasingly, sports results. Platforms like Kalshi and Polymarket have gained attention for offering products that closely resemble sports betting.
For example, users can place trades on outcomes such as player performance or game statistics, much like traditional sportsbook bets. However, these platforms operate under federal oversight rather than state gaming laws.
This difference in regulation is where the issue begins.
The Growing Tax Gap
One of the biggest concerns raised by Caesars Digital is the growing tax imbalance between licensed sportsbooks and prediction markets.
- Licensed sportsbooks, including those tied to online casinos, are heavily taxed at the state level. In some states, tax rates can reach as high as 51%.
- Prediction markets, on the other hand, are often taxed at much lower corporate rates—or not at all in certain states.
This creates a major gap in how much revenue states collect.
When users shift their activity from regulated platforms to prediction markets, states lose out on significant tax income. According to industry estimates, this loss has already reached hundreds of millions of dollars.
Why This Matters for Online Casinos
Hession emphasized that this shift could push states to rethink their approach to gambling laws. As tax revenue declines, lawmakers may look for new ways to recover those funds.
One likely outcome is the expansion of online casinos.
In states where sports betting is already legal, adding online casino gaming could help offset losses caused by prediction markets. Online casinos typically generate higher and more stable tax revenue compared to sports betting alone.
This creates a strong incentive for states to expand iGaming legislation.
Competition and Regulation Challenges
From Caesars Digital's perspective, prediction markets present a difficult challenge.
On one hand, they are attracting users with innovative products and fewer restrictions. On the other hand, licensed operators must follow strict regulations to maintain their state approvals.
Caesars has made it clear that it views many prediction market offerings as a form of gambling. However, the company is choosing not to enter that space until there is clearer regulatory guidance.
This cautious approach reflects the risks involved. Entering an unclear or loosely regulated market could jeopardize existing licenses in key states.
A Shifting Industry Landscape
The broader gambling industry is already evolving. Since the legalization of sports betting in 2018, the market has grown rapidly. But now, new competitors are emerging, including:
- Prediction markets
- Sweepstakes-based gaming platforms
- Unregulated or gray-market operators
These alternatives often operate with fewer restrictions, giving them a competitive edge over traditional online casinos and sportsbooks.
At the same time, states are beginning to respond. Several have filed legal challenges or proposed new laws to limit or regulate prediction markets.
What Comes Next?
The future of prediction markets and online casinos will likely depend on how regulators respond.
If states succeed in applying gambling laws to these platforms, the tax gap could shrink. If not, the pressure to expand legal online casinos will continue to grow.
Hession summed up the situation by noting that as states see revenue shift away from regulated channels, they will be forced to act. That action could include legalizing additional forms of online gaming or creating new frameworks for taxing emerging platforms.
The Bottom Line
Prediction markets are no longer a niche product. They are becoming a major force that could reshape how people engage with sports betting and online casinos. With a surge in coverage around regulation, new rules, massive valuations, industry growth, and controversies, the conversation will continue.
For Caesars Digital and other licensed operators, the challenge is balancing innovation with regulation. For states, the challenge is protecting tax revenue while adapting to a fast-changing market.
As this situation develops, one thing is certain: the relationship between prediction markets, online casinos, and state governments will play a key role in the future of the U.S. gambling industry.
